Sam - tell us how clients are preparing for the new revenue recognition rules and some of the issues they are facing right now?

For the most part I am seeing that private companies are taking time to read through white papers on the new 5 step model, attend seminars or listen to a short webinar, however, very few have rolled up the sleeves to begin documenting their new revenue recognition policy and actually determine its impact on existing contracts with customers. With the new standard effective for private companies for annual periods beginning after December 15, 2018, the time is running out to make proactive changes. While private companies will likely not have to report under ASC 606 until preparing financials for the year-ended 12/31/19, waiting until 2019 to begin the analysis does not leave opportunity for making proactive changes to contracts for desired results.

With regards to impact – the software industry is certainly one of the most impacted. Revenue recognition within this industry under legacy GAAP has been highly complex with abundant industry-specific guidance. Accounting for software products and services under the new guidance is significantly impacted and likely to bring changes for many companies in the industry.

The important take away is that while the accounting under certain industries may be more impacted than others – all companies are going to find the adoption to be a significant exercise. For some companies the accounting may look unchanged, however, it will still require a revamp of the revenue recognition policy and a lot of work to support the positions and conclusions arrived at in consideration of the new standard. Because companies are behind in taking time to apply the standard to existing contracts – many do not realize the additional resources that will be needed and in many cases the transaction data that should begin to be captured on the front end to assist in meeting the revenue recognition requirements going forward.

Companies should reach out to our KN+S team over the summer so we can begin to help them think through what they need to be ready to tackle and how much work it will be. Get prepared!

Sebastian Malatos is an Audit Principal at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with a member of our Team, please contact our office at 781-453-8700.

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